Reynolds American Looks to Newport for Growth

Source from:  Investopedia 08/05/2015

With more than a month under its belt as a Reynolds American (NYSE: RAI), the cigarette maker is already plotting how to grow the Newport menthol cigarette brand it acquired from Lorillard when the two companies merged. Newport is the premier menthol cigarette and the second largest brand behind Altria's Marlboro, owning more than a third of the menthol cigarette market and commanding 13.2% of all retail shipments, up four-tenths of a percentage point from last year.

In its second quarter earnings report released last week, Reynolds said domestic cigarette volume increased 5.6% compared to the industry as a whole, which advanced 1.9% during the same period. It also increased cigarette shipments year-over-year, thanks largely to having the Newport brand in its portfolio for the last two weeks of the quarter.

The menthol cigarette is now a part of Reynolds' "growth" brands, which also include Camel and Pall Mall. Together, they account for over 90% of Reynolds total cigarette market share and 29.2% of the industry.

The cigarette maker says it is looking to "energize and reinforce" Newport, which sounds like it will primarily focus on just the menthol version of the cigarette. Newport also comes in non-menthol flavors, Red and Gold, and Reynolds says while they certainly add to Newport's market share, it is really just going to be looking at the menthol market.

That could be because its Camel menthols are also doing well, and the niche represents a competitive advantage for the tobacco company. Camel's volumes were up 3.5% in the quarter, and its market share held steady at 8.2%. Because Newport and Camel customers are not interchangeable, with each being fairly loyal to the brand, Reynolds American has the opportunity to grow them further.

For example, through the acquisition, Newport's sales force essentially doubled, so there will be a lot more opportunities to get the brand into more locations and expand it into geographies where it might not be present. That has Reynolds looking to accelerate growth of the brand over the next year, which may see it become an even larger component of its overall portfolio.

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